DMS – Managerial Accounting

Templates for Selected Review Questions

Chapter 2

Exercise 2–30

1. Product Cost:

Period Cost:

2. Total product cost = Direct materials + Direct labor + Overhead

3. Unit product cost =

Exercise 2-32

Costs DM DL MOH
Jars
Sugar
Fruit
Pectin
Boxes
Depreciation on the factory building
Cooking equipment operators’ wages
Filling equipment operators’ wages
Packers’ wages
Janitors’ wages
Receptionist’s wages
Telephone
Utilities
Supervisory labour salaries
Insurance on factory building
Depreciation on factory equipment
Oil to lubricate filling equipment

Exercise 2–33

Total product cost = Direct materials + Direct labor + Overhead

Unit product cost =

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 Exercise 2–34

1. Total prime cost = Direct materials + Direct labor

Prime cost per unit = Total prime cost/Number of units

3. Total conversion cost = Direct labor + Overhead

4. Conversion cost per unit = Total conversion cost/Number of units

Exercise 2–37

1. Direct materials used in March =

Materials inventory, 1 Mar + Materials Purchases - Materials inventory, 31 Mar

2. Total manufacturing cost =

2.
3. Direct materials + Direct labor + Manufacturing Overhead

Cost of goods manufactured =

3.

Total manufacturing cost + Work in process, Mar 1 - Work in process, March 31

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 Exercise 2–38

Cost of Goods Sold = COGM + Finished Goods 1 Mar - Finished Goods Mar 31

Exercise 2-39
Cost of Goods Sold = Direct materials + Direct labor + Manufacturing Overhead

Exercise 2-40
Sales revenue = Number of units sold x Selling price

Jasper Company
Income Statement
For Last Year

Sales revenue

Cost of goods sold

Gross profit

Less:

Selling expense
Administrative expense

Operating income

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 Chapter 2

Topic 3 Analysis of Cost behaviour

E x 3-22

Cost category Variable cost Discretionary Fixed Committed Fixed

cost Cost
Technician salaries
Laboratory facility
Laboratory
equipment
Chemicals and other
supplies

E x 3-30

High point:

Low point:

Variable rate of tanning:

Fixed cost per month:

Cost formula (tanning services):

Total predicted cost (Sept):

Total fixed cost (Sept):

Total predicted variable cost (Sept):

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Using the high-low method means that Luisa’s estimate of the cost formula and cost behavior
patterns is based on only 2 data points ignoring other data points.

Issues:

1 Investigate to make sure that both the high and low point are not outliers that distort
the results of the cost formula.
2 Compute the cost formula 6 to 12 months later after a longer time period has passed
since the commencement of the tanning business. More time, more data will help
Luisa to judge whether the high and low points are outliers.
3 Ensure that all data from previous 8 months was collected within the relevant range of
operations .which is very necessary when estimating total fixed costs and variable cost
per unit.

Problem 3-43

1 Scattergraph: the relationship appears to be reasonable linear.

2 Cost formula:
Variable receiving cost =

Fixed receiving cost =

Predicted cost for 1,450 receiving orders =

3 Receiving cost for the quarter =

Receiving cost for the year =

Chapter 4

Exercise 4–24

1. Direct materials
Direct labor
Variable overhead
Variable selling and administrative expense
Unit variable cost
Unit contribution margin = Unit Selling Price – Unit variable cost

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2. Contribution margin ratio =

Variable cost ratio =

3. Break-even units =

Contribution Margin Income Statement

4. Sales
Variable cost
Total contribution margin
Less: Fixed overhead
Fixed selling and administrative expense

Operating income

Exercise 4–26

1 Contribution margin ratio =

2 Variable cost ratio =

3 Breakeven sales revenue =

4 How to increase operating income without increasing sales revenue?

Andreston would have to decrease variable cost hence decreasing the VCR and
increasing the CMR or decrease the fixed cost or a combination n of both ways.

Exercise 4–28

1 Break-even units =

2 Unit variable cost includes all variable costs on a unit basis:

= DM per unit + DL per unit +Variable OH per unit + Variable Selling & Admin.
cost per unit.

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 Unit variable manufacturing cost includes the variable costs of production on a unit
basis:
= DM per unit + DL per unit +Variable OH per unit

Unit VC is used in CVP because it includes all variable costs, not just
manufacturing costs.

3 Units to earn $13,530 =

4 Sales revenue to earn $13,530 =

Exercise 4–29

1 Break-even units =

2 Margin of safety (units) =

3 Margin of safety (dollars) =

4 A decrease in Unit Selling price will cause a decrease in Unit CM which leads to an
increase in Breakeven Point. A higher breakeven point will cause a decrease in the
margin of safety which means increased risk for the company.

Page 7 of 27
Ex. 4-30 Key Answers:

Laertes
TFC = $9500; Units sold= 3,000; UVC = $1.67; UCM = $3.33; CMR= 67%;
BEP (units) = 2,853

Ophelia
Sales = $15,600; Operating income = ($100); USP = $12; CMR = 25%; BEP (units) =
1,333.

Fortinbras
Sales = $16,250; TCM = $6,500; TFC = $6,136; UVC = $78; UCM = $52;
BEP (units) = 118

Claudias
VC = $5,300; TCM = $5,300; USP = $10.60; UVC = $5.30; UCM = $5.30;
CMR = 50%; BEP (units) = 840.

Exercise 4–31

1. Variable cost ratio =

Contribution margin ratio =

2. Because all fixed costs are covered by break-even, any revenue above break- even
yields contribution directly to operating income.

3. Break-even sales revenue =

Contribution Margin Income Statement

Sales $196,875

Less: Variable cost (133,875)

Contribution margin 63,000

Less: Fixed cost. (63,000)

Operating income $0

4. Expected margin of safety=

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5. Margin of safety if sales revenue is $380,000?

Exercise 4–32

1. Sales mix is

2. Sales
Product USP – UVC = UCM x Mix = Total
CM
DVDs
Equipment sets

Package CM

Break-even packages =

Break-even( DVDs) =

Break-even (equipment sets) =

Exercise 4–33

1 Sales mix is

2 Sales
Product USP – UVC = UCM x Mix = Total CM
DVDs
Equipment a.
sets sets
Yoga
Package CM

Break-even packages =

Break-even DVDs =

Break-even equipment sets =

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 Break-even yoga mats =

Peace River Products Inc.

Income Statement for the Coming Year

Sales $418,500
Less total variable Cost (261,000)
Contribution Margin $157,500
Less total fixed cost (114,100)
Operating income $43,400

CMR =

Breakeven sales revenue =

Margin of Safety =

Problem 4–42

1. Break-even units =

2. Units for target profit of $450,000 =

3. Contribution margin ratio =

4. With additional sales of $37,000, the additional profit would be

4. Current units =

Margin of safety in units =

Page 10 of 27
Problem 4–43

1. Door Handles Trim Kits

CM
CM ratio

2. Contribution margin:

Less: Fixed costs

Operating income

3. Sales mix:

USP – UVC = UCM x Sales Mix = Total CM

Door handle
Trim kit
Package CM

Break-even packages =

Door handles =

Trim kits =

4. Revenue

Variable cost

Contribution margin

Fixed cost

Operating income

Yes operating income is $ higher than when both door handles and trim kits
are sold.

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Chapter 5

Exercise 5–32

1. Predetermined overhead rate =

2. Applied overhead (January) =

3. Total Overhead applied for the year =

Actual overhead $
Applied overhead

Underapplied overhead

4. Adjusted Cost of Goods Sold =

Exercise 5–33

1. Assembly department overhead rate =

Testing department overhead rate =

2. Assembly department applied overhead =

Testing department applied overhead =

3. Assembly Department Testing Department

Actual FOH

Applied FOH
Over/Under applied FOH

Assembly dept has

Testing dept has

Page 12 of 27
Exercise 5-40
Key Answers:

Job 213- Total Sales revenue: $1,200; DLC (dept 1): $150; Overhead applied (dept 2) $200.

Job 214- USP: $12.50; DMU: $1,453; FOH applied (dept 1): $420; Unit cost: $8.78.

Job 217- DLC (dept 2): $100; MH (dept 2): 20; total manufacturing cost: $3,948.

Job 225- MH (dept 2): 0; number of units: 230; Unit cost: $2.50.

Exercise 5–41

Plant wide

1. Direct materials

Direct labor:

Department A
Department B
Overhead
Total manufacturing costs..

2. Unit cost =

Departmental

3. Direct materials

Direct labor:

Department A
Department B

Overhead:

Department A

Department B

Total manufacturing costs

4. Unit cost =

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Problem 5–47

1. OH rate =

2. Department A:

Department B:

3. Job 73 Job 74

Plantwide:

Departmental:

Department A appears to be more overhead intensive, so jobs spending more time. In

Department A ought to receive more overhead. Thus, departmental rates provide
more accuracy.

4. Plantwide rate: $75,000 + $60,000 = $7.50 per machine hour

18,000 MH

Department B: $60,000 = $7.50 per machine hour

8,000 MH

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 Job 73 Job 74

Plantwide:

FOH applied = $7.50 x 70 MH FOH applied = $7.50 x 70 MH

= $525 = $525

Departmental: Job 73 Job 74

Dept A ( 20MH x $7.50) = $150 Dept A ( 50MH x $7.50) = $375

Dept B ( 50MH x $7.50) = $375 Dept B ( 20MH x $7.50) = $150

FOH Applied = $525 FOH Applied = $525

Assuming that machine hours is a good cost driver, the departmental rates reveal that
overhead consumption is the same in each department. In this case, there is no need
for departmental rates, and a plantwide rate is sufficient.

Problem 5–51

1. Overhead rate =

2. Carter Pelham Tillson Jasper Dashel

Beginning WIP
Direct materials
Direct labor
Applied overhead

Total

3. Since Jobs were completed, the others must still be in process. Therefore, the
ending balance in Work in Process is the sum of the costs of Jobs:

Cost of Goods Sold =

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 4 PavlovichProsthetics Company

Income Statement for the month ended 31 January

Sales $14,339

Cost of goods sold ($11,030)

Gross margin $ 3, 3 0 9

Less: Marketing and administrative expenses (2,635)

Operating income $674

Chapter 9

Exercise 9–34
Stillwater Designs
Sales Budget
For the Year 2012

1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total

S12L7:
Units
× Price
Total sales

S12L5:
Units
× Price
Sales
Total sales

2. Stillwater Designs will use the sales budget in planning as the basis for the production
budget and the succeeding budgets of the master budget. At year end, the company can
compare actual sales against the budgeted sales to see if expectations were achieved.

Exercise 9–35

Stillwater Designs
Production Budget (S12L7)
For the Year 2012
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
Sales
+ Desired closing stock
Total needs
- Opening stock
Units produced

Page 16 of 27
 Stillwater Designs
Production Budget (S12L5)
For the Year 2012
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
Sales
+ Desired closing stock
Total needs
- Opening stock
Units produced

Exercise 9–38

Fang Company
Direct Materials (DM) Purchases Budget
For July, Aug, and Sept
July Aug Sept Total
Units to be produced 2,800 20,000 30,000 52,800
DM per unit (ounces)
Production needs
+Desired closing stock (ounces)
Total needs
-Opening stock
DM to be purchased (ounces)
Cost per ounce × $0.08 × $0.08 × $0.08 × $0.08
Total purchase cost $ 2,496 $8,800 $9,760 $ 21,056

Exercise 9–39

Joaquin Company
Direct Labor Budget
For March, April, and May
March April May Total
Units to be produced
x Direct labor per unit (hours)
Total hours needed
x Cost per hour
Total direct labor cost $12,000 $72,000 $78,000 $162,000

Exercise 9–42

Workings:
1. Credit sales in May = $240,000 × 0.65= $156,000
Credit sales in June = $230,000 × 0.65 = $149,500
Credit sales in July = $240,000 × 0.65 = $156,000
Credit sales in August = $250,000 × 0.65 = $162,500

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 Lopez Inc.
Schedule of Cash Receipts For July and August

July August
Cash sales $ 84,000 $ 87,500

May June July Aug

Cash Sales $84,000 $87,500

May $156,000 x $156,000 x $156,000

0.25 0.68 x0 .05

June $149,500 x $149,500 x $149,500 x

0.25 0.68= 0 .05 =

July $156,000 x $156,000 x

0.25= 0.68=

August $162,500 x
0.25=

Total

Payments on account:
From May credit sales: $7,800
(0.05 × $156,000)

From June credit sales:

(0.68 × $149,500) $101,660
(0.05 × $149,500) $ 7,475

From July credit sales:

(0.25 × $156,000) $ 39,000
(0.68× $156,000) $106,080

From August credit sales:

(0.25 × $162,500) 0 $ 40,625

Cash receipts $232,460 $241,680

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Exercise 9–44
Draper Company
Schedule of Cash Payments
For August

Payments on accounts payable:

From July purchases
From August purchases

Direct labor payments:

From July
From August

Overhead
Loan repayment

Cash payments.

Exercise 9–45

Cash Budget For June

$ $
Opening cash balance 1,230

Receipts:
Cash sales
Credit sales:
Current month
May credit sales
April credit sales

Total cash available

Less disbursements:
Inventory purchases:
Current month
Prior month
Salaries and wages
Rent
Taxes
Total cash needs

Excess of cash available over needs

2. Yes, the business does show a negative cash balance for June. One way to deal with it
would be for the owner to consider taking less cash salary.

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Chapter 8

Ex 8-26

1 Absorption-costing:
Unit product cost = DM + DL + Total OH (VOH + FOH)

2 Variable-costing:
Unit product cost = DM + DL + VOH

3 Ending inventory = Beginning inventory + Units produced – Units sold

4 Absorption-costing ending inventory

5 Variable-costing ending inventory

Ex 8-27

1 Unit product cost =

Absorption-costing income:

Sales 550,400

Less: Cost of goods sold 303,580

Gross margin/profit $2

Less:

Variable selling exp

Fixed selling and admin exp 75,

9Operating income $170,920

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2 Unit product cost =

Variable-costing income:

Sales ,400

Less Variable costs:

Cost of goods sold $232,200

Variable selling exp 51,600 283,800

Contribution margin $266,600

Less fixed costs:

Fixed overhead 83,000

Fixed selling and admin exp 24,300 107,300

Operating income $1

Ex 8-31

1 Orders per year = Annual no. used units / no. of units in an order
= 4,000 units / 400 units per order

=10
2. Total ordering cost = Number of orders × Cost per order

= 10 orders x $20 per order

= $200
3. Total carrying cost = Ave no. of units in inventory × Cost of carrying one unit in inventory

= 400/2 x $4
= $800
4 Total inventory-related cost = Total ordering cost + Total carrying cost

$1,000
5.No, Zellen’s order size of 600 units is not the economic order quantity (as the ordering costs
of $75 do not equal the carrying costs of $300). Zellen could get closer to the EOQ amount by
ordering more frequently (increasing order cost) in smaller amounts per order (decreasing
carrying costs).

Page 21 of 27
Ex 8-32

1 EOQ = √( 2 x CO X D/CC )
= √( 2 x Cost per order x Annual demand (units)/ Cost of carrying one unit in inventory )
= √( 2 x 20 x 4,000/$4 )

= 200 units
2. Number of orders = Annual no. used units / no. of units in an order

= 4,000 / 200
= 20 per year
3. Total ordering cost = Number of orders × Cost per order

= 20 x $20
= $400
4 Total carrying cost = Ave no. of units in inventory × Cost of carrying one unit in inventory
=200/2x$4

= $400
5 Total inventory-related costs = Total ordering cost + Total carrying cost

Chapter 12

Ex 12-29

1. Maximum TP:

Division that sets the maximum transfer price:

2. Minimum TP:

Division that sets the minimum transfer price:

3. Suppose the 2 divisions agree on a Transfer Price of $35 :

Benefit to Furniture Division:

Revenue
Less: Variable cost
Benefit

Benefit to Motel Division:

Revenue
Less: Variable cost
Benefit

Benefit to company =

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Chapter 10

Ex 10-28

1. Costs of materials ( 40,000 leather belts) =

DL costs (40,000 belts) =

2. Total variance (Materials) =

Total variance ( labour) =

3. Yes the labour variances exceed the budget by more than 10% and the absolute dollar
amount of the materials variance is also large enough to merit investigation.

Ex 10-29

Formula approach:

1. MPV = (AP – SP) AQ

MUV = (AQ –SQ) SP

Columnar approach:
AP x AQ SP x AQ SP x SQ

Total material variance = MPV + MUV

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 2. A favourable materials price affects both materials usage and labour variances. If
quality is low, more waste and more rework which may more than offset the favourable
materials price variance.

Ex 10-30

Formula approach:

1. LRV = (AR – SR) AH

LEV = (AH –SH) SR

Columnar approach:
AR x AH SR x AH SR x SH

Total labour variance = LRV + LEV

2. The favourable MPV is due to purchase of low quality leather strips which cause
unfavourable MUV, LRV and LEV.
Corrective action: Go back to suppliers that provide the good quality material according
to the price standard.

Chapter 13

Exercise 13–24

1. The two alternatives are:

2. Alternatives Differential
Make Buy Cost to Make
DM
DL
VOH
Purchase cost
Total relevant cost

3. Decision: Zion should ___________ the component in-house because operating

income will be ___________ ( ) higher than if the part were
________________ from Buyer.

Page 24 of 27
Exercise 13–25
Alternatives Differential
Make Buy Cost to Make
DM
DL
VOH
Avoidable fixed overhead
Purchase cost
Total relevant cost

(Avoidable fixed overhead is relevant because if Zion makes the component, it will incur the
cost, but if the component is purchased, that fixed overhead will not be incurred.)

Decision: Zion should ___________ the component in-house from Bryce because it will
save___________ ( ) over making it in-house.

2. How increasing or decreasing the 75% figure affects Zion’s final

decision to make or purchase the component:

As percentage of avoidable FC increase (above 75%), total relevant costs of making the
component also increases, causing the “buy” option more appealing.

As percentage of avoidable FC decreases (below 75%), total relevant costs of making the
component also decreases, causing the “make” option more appealing.

Exercise 13–26

1. The two alternatives are:

2. DM
DL
VOH
Total

Relevant manufacturing costs are:

Exercise 13–27
Revenue

Less variable costs:

DM
DL
VOH
Less:

Decision: Smooth Move Company should ___________ the special order because it will
______________ income by $5,000.

Page 25 of 27
Exercise 13–31
1.If HS is sold at split-off , TCM =

2.If HS is processed into CS:

Revenue
Less further processing cost
Contribution margin

Decision: Bozo should ______ HS at split-off; profit from ___________at split-off will be
_______________ higher ( ) than if it were processed into
_____________________into CS.

Exercise 13–32

1. Reno Tahoe
Unit contribution margin
Painting department hours
Contribution margin per unit scarce resource

2. Assuming no other constraints, the optimal mix is

3. Contribution margin =

Page 26 of 27
Exercise 13–33
1.If 500 units of each product can be sold, then the company will

Optimal mix:

2. Total contribution margin

Exercise 13–34

Challenges:
(i) Setting mark-up percentage: too high lose customers because selling price high
but if too low may earn too little profits or even incur losses.

(ii) Costs estimation must be accurate. If cost price is understated, selling price
understated and revenue understated. If cost price is overstated, selling price
overstated and revenue overstated.

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